In this case,
Professor Sebastian Edwards of UCLA has such a diagnosis of foreign aid;
I argue that international aid affects recipient [poor] economies in
extremely complex ways and through multiple and changing channels.
Moreover, this is a two-way relationship – aid agencies influence
policies, and the reality in the recipient country affects the actions
of aid agencies. This relationship is so intricate and time-dependent
that it is not amenable to being captured by cross-country or panel
regressions; in fact, even sophisticated specifications with multiple
breakpoints and nonlinearities are unlikely to explain the inner
workings of the aid–performance connection.
Which could be said about most economic relationships.
Bourguignon and
Sundberg (2007) have pointed out that there is a need to go beyond
econometrics, and to break open the ‘black box’ of development aid. I
would go even further, and argue that we need to realise that there is a
multiplicity of black boxes. Or, to put it differently, that the black
box is highly elastic and keeps changing through time.
What Hayek said;
...the knowledge of the circumstances of which we must make use never
exists in concentrated or integrated form but solely as the dispersed
bits of incomplete and frequently contradictory knowledge....
Breaking these
boxes open and understanding why aid works some times and not others,
and why some projects are successful while other are disasters, requires
analysing in great detail specific country episodes. If we want to
truly understand the convoluted ways in which official aid affects
different economic outcomes, we need to plunge into archives, analyse
data in detail, carefully look for counterfactuals, understand the
temperament of the major players, and take into account historical
circumstances. This is a difficult subject that requires detective-like
work.
And there is no guarantee that anyone will succeed, he might have added.
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